Categories
Financial Planning

Are Orchestra Musicians Independent Contractors?

Are orchestra musicians independent contractors? Landmark court case says  no, musicians are employees.

In April 2016, the U.S. Court of Appeals ruled that the musicians of the Lancaster Symphony are employees. The orchestra’s management argued that musicians were independent contractors with no right to unionize. The musicians eventually prevailed after an eight year legal fight.

It is odd that you can be an employee in one orchestra and yet do the exact same thing for another orchestra and be considered an independent contractor. It doesn’t matter if an orchestra is full-time or per service, the work is the same. Part-time has nothing to do with whether or not someone is an employee.

IRS Definition

Unfortunately, the IRS does not give a precise rule to decide what makes someone an independent contractor. Rather, they have a set of guidelines. An employer will always prefer to have independent contractors. Orchestras say musicians are independent contractors because we have to provide our own instruments. But, the IRS says the key determinant is actually this:

You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.

Link: https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-defined

Every conductor believes that their job is to control “what will be done and how it will be done.” Musicians are told what to do, when, what to wear, and how to act. You are not an independent contractor.

If an employer really had any doubt as to a musicians’ status, they could file Form SS-8: Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. The IRS will review the facts in the case and make a decision. Since employers are not required to submit this form, many simply make the choice on their own.

Employee vs. Independent Contractor

There are a couple of differences between being an independent contractor versus an employee.

  • Independent contractors receive a 1099. Employees receive a W-2 at the end of the year. If you receive a 1099, you report your income and expenses on Schedule C.
  • Independent contractors pay Self-Employment Tax, which means paying both halves of the Social Security and Medicare payroll taxes. For employees, your employer pays one-half of the tax (7.65%), and you pay the other half. Even a per service orchestra likely has several hundred thousand dollars in payroll each year, so 7.65% is a significant expense.
  • Employees have a right to unionize.
  • Musicians who are employees might have a right to unemployment and worker’s comp benefits. Also, employers pay unemployment taxes for employees, but not for independent contractors.

As a musician, you are better off being an employee. The Lancaster Symphony didn’t like that the National Labor Relations Board determined that their musicians were employees. So, they spent eight years in court trying to overturn the NLRB decision and were unsuccessful.

Harvey Mars Interview

I play in a per service orchestra where musicians are considered independent contractors. What does this ruling means to musicians who are independent contractors?

Harvey Mars, Esq. is the counsel for AFM Local 802 in New York and an expert in employment law for professional musicians. Mr. Mars recently wrote about the Lancaster ruling here. (He is also, like me, an Oberlin trombone graduate!) Here’s our conversation:

FFM: Is the Lancaster Symphony ruling grounds to compel other per service orchestras to classify musicians as employees rather than independent contractors?

Mars: Yes, the ruling does establish a precedent and will be considered persuasive authority.

FFM: Do you foresee orchestras making this change voluntarily, or would the players or union need to pursue this on a case by case basis?

Mars: I believe this ruling may change some, but not all employer practices.

FFM: What are the benefits for musicians to be employees rather than independent contractors? (Ability to unionize, unemployment benefits, employment taxes?)

Mars: In addition to what you have, take advantage of statutes that only benefit  employees, such as civil rights statutes.  In New York we have City Laws that only apply to employees covering paid leave time.

The reality is that most orchestra musicians have always been closer to the definition of employee than independent contractor. But no one had ever challenged that status in court. Are orchestra musicians independent contractors? Thanks to the Lancaster Symphony ruling, we have now an answer. Similar per service orchestras should take note!

Categories
Financial Planning

12 Tips to Prepare for an Orchestra Lockout

If you’re a musician in an orchestra, a lockout may be among your worst fears. In 2012, the Minnesota Orchestra musicians were without pay for a devastating 15 months. Only after accepting a 15% pay cut did the orchestra return to work. Today, musicians in the Fort Worth Symphony are facing a stalemate in which management will not budge on draconian proposals to cut pay and benefits. Other groups have faced similar labor disputes and it is becoming increasingly commonplace for management to use brazen tactics to force musicians into accepting pay cuts and other concessions.

In light of this reality, orchestra musicians everywhere would be smart to plan ahead and take the financial steps below to ensure that they could survive a lockout of 15 months or longer. Here are 12 tips to put your personal finances on stronger footing:

  1. Know when your Collective Bargaining Agreement (CBA) is up for renewal. If your contract is up in the next year, conserve cash. Be careful about buying a car or making a major purchase if it means creating increased monthly expenses. Even if you think your orchestra has a good relationship with management, be cautious. Sometimes labor disputes can take a surprising turn, as my friends in Syracuse learned several years ago.
  2. Keep 6-12 months cash. The old rule of thumb was to have an emergency fund of 3-6 months of cash to cover your basic living expenses. Today, it may be more prudent to reserve 6-12 months of cash. This is tough to do – especially since you should continue to fund your retirement accounts – but when you’re in trouble, cash is king.
  3. Create a Budget. To calculate your emergency fund, you need to make a household budget and know how much you spend each month in both fixed and discretionary expenses. While you are evaluating your budget, look for ways to lower costs on recurring expenses such as cable TV, cell phones, insurance, and other monthly bills.
  4. Get ahead on your mortgage. If you send in extra principal payments on your mortgage (or other bills), you may want to stop. Instead, send in advanced payments, so you are several months ahead. Then if your pay is suspended, you will have a cushion of a couple of months before your next mortgage payment is due. This is especially helpful if you find that keeping a lot of cash on hand is a temptation to buy things!
  5. Pay off those credit cards. You cannot afford to be paying 20 to 30 percent interest on credit cards, especially if there is a possibility that your paycheck could vanish. I would say this takes priority over #2, keeping an emergency fund. In other words, go ahead and pay off your credit cards even if it means dipping into your cash significantly. Keep the credit cards open; they will be your source of emergency funds while you are rebuilding your cash account.
  6. Ask for an increase in your credit limits today. Maybe you’ve never exceeded $2,000 a month on your credit card, but having a $10,000 limit or higher could be helpful if you do end up locked out. If you wait until you are without a paycheck, when your income is zero, the credit card company is not going to increase your limits.
  7. If you have federal student loans, look into the Income Based Repayment Plan. This benefit is a good reason to not consolidate your loans into private bank loans. If your kids are in college, notify the school’s financial aid office immediately if your pay or employment changes. They may be able to increase your child’s need based financial aid.
  8. Research unemployment benefits, which vary by state. Here in Texas, you are eligible for unemployment if you are locked out, but not if you are on strike. New York is the only state that offers unemployment benefits to striking workers. If you are eligible, apply immediately for benefits. Link: Texas Workforce Commission: If You Are Involved in a Labor Dispute or Strike.
  9.  Supplement your income. Look for church gigs, weddings, private students, and other opportunities to moonlight and make some cash. While this is unlikely to replace your full orchestra salary, freelance gigs may go a long ways towards paying your monthly bills. Note that most unemployment benefits will continue if you have gigs, but will simply reduce the amount of your benefit in the weeks you receive income. If you can, try to schedule all your students on weeks you have gigs. You are better off having one huge week of income and three weeks of no income, rather than spreading that income over the course of the month. That way you can still receive unemployment benefits for the weeks you have zero income.
  10. Don’t dip into retirement accounts. If you take a withdrawal from your 403(B) or Traditional IRA before age 59 1/2, you will have to pay income tax on the withdrawal, plus a 10% penalty. You could lose as much as 35% to 50% to taxes and penalties, and that is just too costly. Plus, you are then sinking your future retirement and all the hard work that went into saving that money in the first place. Retirement accounts are creditor protected. Even if you were to face bankruptcy or foreclosure, you are not required to dip into your retirement accounts. Talk with an expert before ever taking a premature retirement distribution.
  11. Consider a Roth IRA. If you are struggling with prioritizing retirement accounts, building an emergency fund, and other needs, consider funding a Roth IRA. You can withdraw your contributions (but not any of the earnings), without tax or penalty, even if you are under age 59 1/2. For example, if you put in $5,000 to a Roth IRA, and it grows to $6,000, you can withdraw your original $5,000, tax and penalty-free. If you’re eligible for a Roth, it is a good tool to save for retirement, while still giving you the flexibility to use your money in case of an emergency.
  12. Health insurance. Take care of your annual physical, prescriptions, dental visits, eye exams, and any other health expenses while your insurance is in place. Budget for COBRA or look into an individual health plan, and make sure there is no gap in your being covered.

Hopefully, you will never find yourself locked out by your employer, but being prepared financially for such a situation should help you sleep better at night. Management knows that many musicians cannot afford to be without a paycheck for long and will use this threat at the bargaining table. I’ve been on a negotiating committee before and can tell you that things can get pretty ugly. The better prepared musicians are for the possibility of a strike or lockout, the stronger position you will have in negotiations to be taken seriously.

If you want to organize your finances and create a plan to accomplish your goals and address the risks you face, please give me a call or send me an email. I have a passion for the details of financial planning, but most of all, I love to help people. Thank you for reading! Best Regards, Scott

Categories
Financial Planning

Introducing Finance For Musicians!

No one becomes a professional musician for the money. It’s a labor of love. But we all have responsibilities: mortgages to pay, families to feed, and important goals like financial security and retirement. I’m a trombonist who has been a Financial Planner since 2004. Over that time, I’ve worked with hundreds of families, including quite a few of my fellow musicians. And what I have discovered is that while there are a lot of musicians who could use sound financial advice, there are almost no advisors who understand anything about the life of a musician. That’s why I created Finance For Musicians.

My goal is to help musicians achieve peace of mind regarding all their financial affairs. Finance For Musicians is your source for useful, objective information on saving, investing, insurance, taxes, and retirement planning. Being a musician isn’t a 9-5 job and you have unique financial concerns that are vastly different from people in traditional careers. All the information here is written specifically for professional musicians like you. I’ll be posting new articles weekly and encourage you to sign up so you don’t miss any valuable ideas.

Have a financial question? Send me a note or give me a call, I’m always happy to chat with a fellow musician. If you are looking for personal financial advice, you can find out more about hiring me as your Financial Planner here.

Thank you for reading!

Scott Stratton, CFP(R), CFA

President, Good Life Wealth Management LLC

scott@goodlifewealth.com

Categories
Financial Planning

How Some Investors Saved 50% More

While some people view risk as synonymous with opportunity, the majority of us don’t enjoy the roller coaster ride of investing.  Our natural proclivity for risk-avoidance can, unfortunately, become a deterrent in deciding how much we save. Without having specific goals, investors often default to a relatively low contribution rate to retirement accounts and other investment vehicles.  They commit only how much they feel comfortable investing, rather than looking at how much they actually need to be saving in order to fund their retirement or other financial goals.

Categories
Financial Planning

5 Techniques for Goal Achievement

Goal Setting is a key step to the financial planning process, and helping clients achieve goals is the value I provide.  Everyone would like to be wealthy, but that is not a goal.  To me, it only becomes a goal when we can state a clear, tangible objective.  So, if you’d like to retire, we’d calculate how to make that happen and develop a specific goal like “accumulate $2.1 million dollars by 2026.”  That long-term goal gives us a timeline and dictates what we need to do each year and month to make your goal a reality.  We can observe if you are on track and make adjustments as needed in the years ahead.  The key step though is translating an ambiguous desire into a goal which is measurable.